The Weather is Freezing but Stocks Are Hot. It's the January Effect. - Barron'sSkip to Main ContentThis copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.# The Weather is Freezing but Stocks Are Hot. It's the January Effect.By [Martin Baccardax]ShareResize---ReprintsIn this arti ...

The Weather is Freezing but Stocks Are Hot. It's the January Effect. - Barron'sSkip to Main ContentThis copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.# The Weather is Freezing but Stocks Are Hot. It's the January Effect.By [Martin Baccardax]ShareResize---ReprintsIn this arti ...

Core Viewpoint - Small-cap stocks have started the year strongly, raising hopes for impressive performances in 2026, with the Invesco NASDAQ Future Gen 200 ETF (QQQS) showing a year-to-date increase of 7.16% [2][4]. Group 1: Market Trends - The January Effect may be influencing the bullish trend in small-cap stocks, as they often rally at the beginning of the year, potentially leading to broader market gains [2][3]. - Historically, small-cap benchmarks like the Russell 2000 and S&P Small Cap 600 have underperformed large-cap indexes, but there is optimism that this trend may reverse in 2026 due to lower interest rates and a resilient U.S. economy [5][6]. Group 2: Investment Opportunities - Small-cap stocks and ETFs like QQQS are currently attractively valued compared to large-cap peers, indicating potential for closing the valuation gap [6]. - Smaller stocks are expected to deliver superior earnings growth relative to large-caps this year, supporting a positive outlook for QQQS in 2026 [7]. - Additional interest rate reductions could benefit QQQS by lowering borrowing costs, particularly as some of its holdings are rumored acquisition targets [8].

Core Viewpoint - Invesco is an independent investment management firm focused on enhancing the investment experience for individuals [1] Group 1 - Invesco emphasizes the importance of understanding investment objectives, risks, charges, and expenses before making investment decisions [1] - The firm provides educational content but does not offer specific investment recommendations or tax advice [1] - Invesco's opinions are based on current market conditions and may change without notice, indicating a dynamic approach to investment strategies [1] Group 2 - Invesco Distributors, Inc. serves as the US distributor for Invesco Ltd.'s retail products and collective trust funds [1] - The company operates through various affiliated investment advisers that provide advisory services without selling securities [1] - Invesco Unit Investment Trusts are distributed by Invesco Capital Markets, Inc. and other broker-dealers, highlighting the firm's extensive distribution network [1]

Company Overview - SoundHound has unveiled Amelia 7, a significant upgrade to its conversational AI platform, marking a transition from generative AI to agentic AI [1] - The company has carved out a niche in Voice AI, embedding its technology in vehicles and restaurants, distinguishing itself from text-based chatbots [3] Market Performance - SoundHound's stock rose approximately 12% in early January, with trading volume exceeding daily averages, indicating a potential shift in market sentiment [4] - Analysts maintain a bullish outlook on SoundHound due to its unique voice solutions and strong revenue growth, positioning the company to capitalize on the demand for independent voice AI [5] Financial Performance - The company's third-quarter revenue for fiscal year 2025 was $42.1 million, reflecting a 68% increase year-over-year, driven by its acquisition strategy [11] - SoundHound holds approximately $269 million in cash, providing a strong balance sheet and mitigating cash burn risks [12] Technological Advancements - The new Agentic AI capabilities allow vehicles to perform complex tasks autonomously, enhancing the utility of in-car voice assistants [6] - This innovation opens new revenue streams through transactional models, allowing SoundHound to earn fees for completed bookings [7] Competitive Positioning - SoundHound offers white-label solutions that allow car manufacturers to maintain brand identity and customer data sovereignty, which is increasingly important in the software-defined vehicle market [9] - The company’s independence from major tech giants strengthens its competitive moat [7] Valuation and Outlook - SoundHound's stock is currently trading near $11.00, which analysts view as undervalued compared to its growth trajectory, with price targets ranging from $15.00 to $26.00 [16][17] - The company aims to achieve Adjusted EBITDA profitability by the end of 2026, with a liquidity runway of over two years at current burn rates [20]

Core Insights - Wall Street experienced a mixed start to 2026, with the S&P 500 rising 0.2%, the Dow Jones Industrial Average increasing by 0.7%, while the Nasdaq fell by 0.3%. The small-cap Russell 2000 index outperformed with a 1.1% gain [2] Small-Cap Stocks Outlook - The early strength in small-cap stocks may signal the potential return of the "January Effect," where smaller companies' stock prices typically rise more in January due to year-end tax-loss selling [3] - Several macroeconomic factors are expected to support small-cap stocks in 2026, beyond the January seasonal pattern [5] Catalysts for Small-Cap Rally - **Favorable Macroeconomic Outlook**: Easing interest rates are anticipated to enhance small-cap stock performance, with Goldman Sachs highlighting compelling opportunities driven by expected rate cuts and accelerating earnings [6] - **Attractive Relative Valuations**: U.S. small caps are trading at a 26% discount to large caps, near historic lows, while international small caps are at an 8% discount despite higher forward earnings growth [7] - **Domestic Economic Advantages**: Small-cap companies benefit more from domestic revenue sources, positioning them favorably amid trends like reshoring and infrastructure development [8] - **AI as a Beneficiary**: Small caps may gain disproportionately from AI-driven productivity improvements, leading to larger percentage earnings growth compared to large caps [9] - **Increased Market Activity**: A rise in mergers and acquisitions (M&A) and a recovering IPO market in 2026 could create significant returns and validate small-cap valuations [10] Investment Strategy: ETFs vs. Individual Stocks - Investors may prefer small-cap ETFs for exposure due to the diversification they offer across over 2,000 companies, mitigating risks associated with individual stocks [11][12] Recommended Small-Cap ETFs - **Vanguard Russell 2000 ETF (VTWO)**: Offers exposure to 1,989 U.S. small-cap stocks, with a 12.2% increase over the past year and net assets of $13.7 billion [14][15] - **iShares Russell 2000 ETF (IWM)**: Provides exposure to 1,959 small public U.S. companies, gaining 12% over the past year with net assets of $74.42 billion [16][17] - **Vanguard Small-Cap ETF (VB)**: Covers 1,331 small-cap companies, with an 8.8% rise over the past year and net assets of $68.9 billion [18][19]

Core Viewpoint - The article discusses the potential for growth in three AI-related stocks—NVIDIA Corp., Micron Technology, Inc., and Palantir Technologies Inc.—due to the "January Effect" and ongoing demand in the technology sector driven by artificial intelligence [2][4]. Group 1: NVIDIA Corp. - NVIDIA is expected to experience strong growth driven by demand for its AI hardware, particularly its next-generation Blackwell chips and cloud GPUs [5]. - The easing of U.S.-China trade tensions, highlighted by the approval of H200 AI chip shipments to select customers in China, is seen as a positive development for NVIDIA [6]. - NVIDIA projects fiscal fourth-quarter 2026 revenues at approximately $65 billion, with a margin of plus or minus 2% [7]. - The company's expected earnings growth rate for the current year is 55.9%, with a Zacks Consensus Estimate for EPS at $4.66, reflecting a 12% year-over-year increase [8]. Group 2: Micron Technology, Inc. - Micron's high-bandwidth memory (HBM) chips are in continuous demand, supporting growth in 2025 and expected to continue this year [9]. - The company anticipates fiscal second-quarter 2026 revenues between $18.3 billion and $19.1 billion, mirroring revenue growth seen during the dot-com bubble [10]. - Micron's projected earnings growth rate for the current year is 278.3%, with a Zacks Consensus Estimate for EPS at $31.36, indicating a 185.9% year-over-year increase [11]. Group 3: Palantir Technologies Inc. - Palantir is positioned for growth due to the increasing adoption of its Artificial Intelligence Platform (AIP) among U.S. government and commercial clients [12]. - The company expects total revenues for 2025 to be between $4.396 billion and $4.400 billion, indicating growth in both client segments [13]. - Palantir's expected earnings growth rate for the current year is 42.5%, with a Zacks Consensus Estimate for EPS at $0.73, reflecting a 52.1% year-over-year increase [14].

Core Insights - The Zacks Equity Research team has highlighted stocks including Amazon.com, Palantir Technologies, TotalEnergies, and MIND Technology in their recent analysis, focusing on their performance and market outlook [1][2]. Amazon.com, Inc. (AMZN) - Amazon's shares have outperformed the Zacks Internet - Commerce industry over the past six months, with a gain of 4.5% compared to the industry's 2.4% [4]. - The company projects Q4 2025 net sales between $206 billion and $213 billion, with operating income expected to be between $21 billion and $26 billion, indicating operational efficiency gains [5]. - AI integration is enhancing personalization and logistics, strengthening Amazon's competitive position, although substantial capital expenditures for AI infrastructure may strain financial resources [6]. Palantir Technologies Inc. (PLTR) - Palantir's shares have significantly outperformed the Zacks Internet - Software industry, gaining 32.3% compared to a decline of 6.5% in the industry over the past six months [7]. - The company has $5.4 billion in cash and no debt, providing strong liquidity and visibility, while its AI strategy is driving growth in both government and commercial sectors [8]. - Despite a 122.5% increase in share price over the past year, intense competition and rising costs present challenges, leading to a neutral rating on the stock [9]. TotalEnergies SE (TTE) - TotalEnergies' shares have outperformed the Zacks Oil and Gas - Refining and Marketing industry, with a 5.9% increase compared to the industry's 1.7% over the past six months [10]. - The company is benefiting from contributions from startups and well-spread LNG assets, with a focus on generating 15-20% of sales from low-carbon business by 2040 [11]. - However, security concerns in some production regions and acquisition-related risks pose challenges to its operations [12]. MIND Technology, Inc. (MIND) - MIND Technology's shares have gained 11.4% over the past six months, although this is below the Zacks Technology Services industry's gain of 15.4% [13]. - The company secured a $9.5 million seismic contract in December 2025, indicating improving demand, and has expanded its Huntsville facility to support higher-margin throughput [14]. - Despite recent gains, declining revenue and backlog highlight demand volatility, and rising operating expenses may pressure profitability [15].

Market Overview - The market opened positively on the first trading day of the new year, with the Dow up by 139 points (+0.29%), S&P 500 up by 35 points (+0.51%), Nasdaq up by 235 points (+0.93%), and Russell 2000 up by 13 points (+0.53%) [1] - The Nasdaq experienced a remarkable +39% gain from April tariff lows, while the Russell 2000, S&P 500, and Dow saw gains of +33%, +32%, and +24% respectively [1] January Effect - The "January Effect" refers to strategies that lead to higher market growth at the start of the year, influenced by tax-loss harvesting, year-end bonuses reinvested into the market, and a generally positive outlook for the new year [2] Economic Challenges - Potential headwinds for the upcoming year include tariffs, employment insecurity, and rising healthcare costs, which may impact U.S. consumer spending and economic growth [3] - A possible federal government shutdown is anticipated as Congress reconvenes [3] Tariff Adjustments - Some tariffs are being rolled back for the new year, including those on furniture and Italian pasta, indicating a recognition of affordability issues both domestically and internationally [4] Upcoming Market Activity - A more normal trading volume is expected to resume with the first full trading week of 2026, and any potential "January Effect" may manifest next week [5] Employment Data - Jobs Week is approaching, with key reports including ADP private-sector payrolls and the Employment Situation report from the U.S. Bureau of Labor Statistics, following a weak month for job growth and a rising unemployment rate [6] Manufacturing Report - The final S&P U.S. Manufacturing report for December is expected to remain above the growth threshold at 51.7, although it reflects a decline from the previous reading of 51.8, marking the lowest level since mid-summer [7]

Market Overview - The first trading day of 2026 shows positive momentum with the Dow up by 139 points (+0.29%), S&P 500 up by 35 points (+0.51%), Nasdaq up by 235 points (+0.93%), and Russell 2000 up by 13 points (+0.53%) [1] - The Nasdaq experienced a remarkable +39% gain from April tariff lows in 2025, with the Russell 2000, S&P 500, and Dow also showing significant increases of +33%, +32%, and +24% respectively [2] January Effect - The "January Effect" refers to strategies that lead to higher market growth at the start of the year, influenced by tax-loss harvesting, rebalancing initiatives, and reinvestment of year-end bonuses [3] Economic Challenges - Potential headwinds for 2026 include tariffs, employment insecurity, and rising healthcare costs, which may impact U.S. consumer spending [4] - A federal government shutdown is also a possibility as Congress reconvenes [4] Tariff Adjustments - Some tariffs are being rolled back for the new year, including those on furniture and Italian pasta, indicating a recognition of affordability issues both domestically and internationally [5] Upcoming Economic Data - The first full trading week of 2026 will begin with significant economic data releases, including ADP private-sector payrolls and the Employment Situation report, following a weak month for jobs [7] - The final S&P U.S. Manufacturing report for December is expected to remain above the growth threshold at 51.7, although it reflects a decline from the previous month [8][9]